Buying and Investing in digital assets can be a great way to make a bang for your buck in 2022. With the current popularity and evident success that surrounds the crypto space, more and more people are looking into entering this new terrain for themselves. Trying new things can be fun but approaching them smartly is in your best interest. Before you invest your time and hard-earned money into digital assets, there are a few things you need to know to really put yourself ahead.
But first, what exactly are digital assets?
What is a Digital Asset?
Simply put, digital assets are electronic files of data that are stored in a collection of computers spread across the globe called the Blockchain. These assets can be owned and transferred by individuals and used as a currency to make transactions or as a way of storing intangible content, such as computerized artworks, videos, or contract documents. Examples of digital assets include cryptocurrencies, such as Bitcoin, Etherium, Polygon, Tether, and non-fungible tokens (NFTs).
What you need to know before you invest
- Have a Strong Grasp of what you’re getting into
“Do your own research” or DYOR is a term you’ll hear a lot in your journey. This is the advice that most crypto personalities like Gary Vee, Mike Sailor, and others have propounded from the beginning. These are trusted personalities who most time give good investment advice but regardless of their achievements, they still say the same thing over and over again.
DYOR is great advice and here’s why. The nature of the industry right now is quite unstable. No matter how well the personalities you respect predict, they don’t know the future. The rising and fall of cryptocurrencies, rug pulling of NFT projects, network crashes, and hacks are all unforeseeable events. However, with a deep dive into projects you find interesting; do they have utility, do they have a good history, are the creator and founders real human beings with real online presences, are the backers of the product credible, and is the product gearing up for web3.0, are a few of the questions that you should have answered before fully investing in a project.
Because even though you invest money you can’t live without, you still want to make sure you’re not being careless. When you have these questions answered, you can then proceed to make educated assumptions on projects and investments.
- Are The Asset Providers Legitimate in your Region?
Different countries have different regulations regarding crypto. In some countries, it isn’t regarded as legal tender. In some they don’t allow you to make purchases with it and, in others, they let you have free reign with it. It is important to know where your country stands regarding crypto regulation.
Although the general idea behind cryptocurrency was to be borderless, domestic regulations cannot be ignored. What may technically be legal in one country could be the opposite in another. Additionally, regulations are constantly changing because regulators, tax authorities, and enforcement agencies are constantly trying to keep up with the constant crypto growth.
Find a company that has spent significant time in existence and has a reputable history. Check the news for stories of hacks and breaches. Evaluate how they responded to it. Be sure to check the most reputable digital asset providers that are legitimate and align with justifications from different regions. Coinbase, Binance, and Gemini are perfect examples.
- Can The Asset Providers Ensure the Security of my Asset?
Digital assets exist majorly online and for this reason, they are highly vulnerable to attacks. However, there are several ways to make sure your assets are secured against counterparty risk.
Firstly, be sure to fully grasp what security the company provides. Do they have the know-how and experience? Or are they another exchange building a security vault that will ultimately be rug pulled? To ensure you’re investing safely, you need to do due diligence on the counterparty.
The digital asset provider must have infrastructure in place that is capable of protecting digital assets. There’s no point in purchasing from a company if they are vulnerable to attack.
Additionally, as regulatory bodies crackdown on the cryptocurrency space, you must ensure that your provider is executing and abiding by know-your-customer (KYC) and anti-money-laundering (AML) procedures. According to Jumio, “AML refers to all efforts involved in preventing money laundering, such as stopping criminals from becoming customers and monitoring transactions for suspicious activity. KYC refers to customer identification and screening and ensuring you understand the risk of your business” Using reputable companies who abide by these will ensure digital assets are purchased from only legal and licensed regulation providers.
- The Track Record of the Asset Management
This part required knowing the history of your asset providers and how their operations have faired since their inception. For one they have to be licensed and have proper jurisdiction in your region.
Also, you must be sure they have key insights into how digital assets work. Not just any company can manage your asset. That’s why there’s a lot of emphasis on doing your own research. But regardless of what you know about the space, the company managing your assets should have more knowledge than you do.
Giving due diligence to a platform beforehand to see their track record and history in digital asset management is reliable, which will give you peace of mind. These companies should have a portfolio of previous and current clients they are working with safekeeping. Here KYC comes in crucial again. Make sure they are using a reputable KYC partner. Not all companies offer KYC services that are reputable. A reputable KYC platform that uses artificial intelligence. Onfido is one. Onfido will remotely verify your identity to ensure your assets are yours and can perform these checks better than any human.
- The Industry is Volatile (For now)
Because these are the early stages of cryptocurrency, NFTs, Metaverse, and web3.0, a lot of the operations still remain in progress. This means that they haven’t reached the level of stability they intend even with their staggering numbers. Investing in crypto makes being open to large losses and high rises. Also, a lot of NFTs do not have much value, and losses and scams occur here as well.
The crypto market is very volatile at the moment and this means that massive losses and wins are bound to occur at any moment. It is for this reason that we advise you to only invest what you’re willing to lose. When you invest this way, the instability could either go in your favor or against you but either way, it goes you’ll be comfortable with the outcome.
Investing in what you are willing to lose cannot be emphasized enough. This way losses are not so bad and wins are much more exciting. Additionally, when you’re not actively trading, remove your assets from the exchange with a hardware wallet or custody provider who will protect your assets.
There is a lot to keep in mind before you decide to invest in digital assets but to sum it all up, make sure your asset providers and asset managers are vetted, legitimate, and secure. Secondly, be sure to do in-depth research into the industry, and lastly, don’t insert what you’re not willing to lose. Be sure to stay updated with your asset provider and managers on whatever social media platforms they have and regular crypto news forums.